Deconstruction of the Green Bubble during COVID-19 International Evidence

Abstract

Bubbles are usually chaotic but can be predictable, provided their formation matches the log periodic power law (LPPL) with unique stylized facts. We investigated Green Bubble behaviour in the stock prices of a selection of stocks during the COVID-19 pandemic, namely, those with the highest market capitalization from a basket of North American and European green energy or clean tech companies and the S&P Global Clean Energy Index. Moreover, the biggest Exchange Traded Fund (TAN) by market capitalization was also considered. The examined period is from 31 December 2019 to 11 October 2021, during which we detected 35 Green Bubbles. All of these followed the LPPL signature while calibrated through the 2013 reformulated LPPL model. In addition, the average drawdown emerged as four times that of the regular S&P-500 stock index (108% vs. 27%) under stressed conditions, such as the COVID-19 pandemic (stylized fact). Finally, the aftermaths of Green Bubbles, unlike regular bubbles, are not destructive, as these bubbles increase economic activity and infrastructure spending and are hence beneficial for holistic growth (described as Social Bubble Hypothesis). We document that there are benefits in adapting greener and more sustainable business models in energy production. Green and sustainable finance offers benefits and opportunities for stock exchanges, especially for energy stocks. As a result, many businesses are focusing on sustainability and adopting an eco-friendly business model, which helps the environment, helps sustainability and attracts investors.

Did cryptocurrencies exhibit log‐periodic power law signature during the second wave of COVID‐19?

“…As suggested by other authors, a drawdown is defined as a sharp move from local minima to local maxima (Ghosh et al, 2021; Ghosh, Papathanasiou, Dar, & Kenourgios, 2022). Previous analysis has shown that the worst 10 drawdowns between 1970 and 2020, on average, exhibited a 27% drop.…”

“…The data set selection is not arbitrary. The LPPL methodology requires the data set to include drawdowns (Ghosh, Papathanasiou, Dar, & Kenourgios, 2022). Previous studies have suggested that the average drawdown should be more than 50% in cryptocurrencies to sustain the crash.…”

Connectedness between low carbon portfolios, economy and finance: the role of pandemic crisis and Ukrainian war

“…More recently, some studies have underlined that analysis between the two markets should be of a dynamic nature, as the relation between them changes at different moments in time and according to the context conditions, which are also of a variable nature (Broadstock and Filis, 2014; Sadorsky, 2014; Antonakakis et al , 2017; Anand and Sunil, 2021). For their part, analysing a selection of stocks during the COVID-19 pandemic and the S&P Global Clean Energy Index, Ghosh et al (2022) argue that green and sustainable finance offers benefits and opportunities for stock exchanges, especially for energy stocks.…”

Random Walk of Socially Responsible Investment in Emerging Market

“…Interestingly, Ghosh et al [17] proved that, unlike conventional bubbles, the effects of green (Green finance refers to "the flow of financial investments into sustainable development projects and initiatives, environmental products, and policies that encourage the development of a more sustainable economy" [17]) bubbles are not detrimental since they boost infrastructure expenditure and economic activity, which is good for overall growth. Moreover, Umar et al [18] reported that markets adhering to ESG criteria are interconnected, with their connectivity significantly increasing during unrest such as the European sovereign debt crisis, the systemic Greek difficulties, and the coronavirus pandemic.…”